Finance & Banking
As a part of the large and cumbersome Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), Section 1071 was enacted to amend the Equal Credit Opportunity Act (15 U.S.C. 1691 et. seq.) to impose data collecting requirements on financial institutions. Pursuant to Section 1071 (the “Rule”), financial institutions are required to compile, maintain, and submit to the Consumer Financial Protection Bureau (“CFPB”) certain information concerning credit applications by women-owned, minority-owned, and small businesses. The Rule was not slated to go into effect until the CFPB issues necessary implementing regulations. Unfortunately, nearly 8.5 years later, there is still no guidance. Consumers and financial institutions alike are at a sort of standstill, unclear on the contours of its reporting requirements. In November of 2019, the CFPB published a letter to financial institutions promising to develop rules “expeditiously;” the CFPB later hosted an information-gathering symposium on the Rule, yet there is still no clear guidance.
In addition to enforcement agencies attempting to tame the seemingly untameable world of cryptocurrency trading, agencies continue to tackle issues of market manipulation, including spoofing, as well as push into investigating international corruption in an effort to maintain economic and market integrity. As new developments emerge, compliance directors and operations associates will hopefully gain more guidance on coaching traders on exchange rules.
The Federal Trade Commission (“FTC”) recently proposed two amendments to the Privacy Rule and Safeguards Rule under the Gramm-Leach-Bliley Act (“GLBA”). The Safeguards Rule requires financial institutions to develop, implement, and maintain a comprehensive information security system. This rule went into effect in 2003. The Privacy Rule requires financial institutions to inform customers about its information-sharing practices and allows customers to opt out of having their information shared with certain third parties. This rule went into effect in 2000. The recent amendments to these two rules are intended to further protect consumers’ data from third parties. However, the changes could also adversely affect businesses.
On January 28, 2019 the Financial Industry Regulatory Authority (FINRA) released Regulatory Notice 19-04 announcing a 529 Plan Share Class Initiative encouraging firms to self-report potential violations. Broker-Dealers are encouraged to consider self-reporting under the initiative if they have identified specified failures in connection with 529 plan recommendations, and have the ability to assess the impact of the failures. Firms have until April 1st to notify FINRA in writing if it has decided to self-report.
On Christmas Day 2013, The Wolf of Wall Street debuted to rave reviews and quickly became director Martin Scorsese’s top-grossing film. Audiences loved Leonardo DiCaprio’s portrayal of Jordan Belfort, an aggressive stockbroker who rapidly rises to wealth through smooth talking and high-pressure sales tactics. The film is filled with outrageous partying, unethical Wall Street stockbrokers and bankers, and culminates in the arrest of Belfort and the downfall of his criminal enterprise. While certain scenes from the film were arguably embellished, the film is based on a true story. The more amazing true story, however, is that The Wolf of Wall Street was funded and produced through a massive fraud that makes Jordan Belfort’s escapades look miniscule. On November 1, 2018, Timothy Leissner, a Goldman Sachs partner, plead guilty to conspiring to launder money and violating foreign antibribery laws for his role in a massive scandal that involves the prime minister of Malaysia, Middle Eastern sovereign wealth funds, and even Paris Hilton.
Just in time for holiday shopping, and at the beginning of Q4, President Trump delivered some news for holiday shoppers. In what shocked some, but others found as expected and inevitable, President Trump continued his message to the world that the US will not be “handing out donations” much longer. His latest re-negotiation to bring dollars back to the US has left overseas ecommerce providers wondering what the latest move in this Administration’s financial overturn is going to do for their business. It’s not the big players like Amazon that’ll feel the brunt of this, but the smaller players in the eCommerce space that outsource their products overseas may feel a hit in their margins as this move by Trump takes its toll.
On October 31, 2018 the Federal Reserve (the “Fed”) announced a proposal for looser capital and liquidity requirements for some U.S. banks. This announcement is in line with the latest moves to reduce regulatory burdens on community and regional financial institutions, but marks one of the most significant rollbacks of bank regulations since the Trump administration took office. The proposed changes will divide big banks into four categories based on their size and other risk factors. The proposal will generally affect large U.S. lenders, yet leave some of the largest banks untouched.
Both the Securities Exchange Commission (SEC) and Department of Labor (DOL) are pushing ahead with fiduciary standards for investment advisers despite the 5th Circuit striking down the DOL’s previous fiduciary rule earlier this year.
Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York entered an Order for Final Judgment and Consent Order for Final Judgment (“the Orders”) early this month, resolving charges of a Commodity Futures Trading Commission (the “CFTC”) Complaint against a New York Corporation, Gelfman Blueprint Inc. (“GBI”) and its Chief Executive Officer, Nicholas Gelfman. The CFTC’s complaint, filed in January of 2017, marked the first anti-fraud enforcement action involving Bitcoin filed by the Commodity Futures Trading Commission. The Orders found that from approximately January of 2014-January 2016 Defendants Gelfman and GBI, through its officers and agents and employees, operated a Bitcoin Ponzi scheme in which they fraudulently solicited more than $600,000 from at least 80 customers.
In the age of digitization, data seems less secure than ever. Public companies constantly attempt to safeguard both personal and financial data, yet their efforts fail due to new outbreaks of malicious encryption viruses and persistent email phishing attempts. Data breaches and cyber fraud carry severe financial implications for public companies who fall victim to these types of attacks. But a new Securities and Exchange Commission (SEC) report says that public companies that are easy targets of cyber scams could also be in violation of federal securities laws and accounting regulations that call for firms to safeguard their assets. Although the SEC has issued its warning to public companies about the compliance and financial risks posed by cyber fraud, many companies are still struggling to implement effective protections against newly-evolved forms of cyber-attacks.